Investment Outlook 2018
At the close of 2017, the year in retrospect has been positive for stock markets. This is perhaps not what many expected at the beginning of the year, but volatility in political and natural events (a general election, Brexit negotiations, Trump’s presidency in the US, hurricanes...) has not translated to the markets.
The inevitable question now is how long will this last? Will values keep going up or is there going to be a crash?
How long will the good times last?
It’s a question that concerns both individual investors (such as doctors with stocks and shares in ISAs, pensions or other accounts) and the investment professionals. The view from the professionals is one of cautious optimism. Global economic indicators are looking good; there is not much sign of a recession around. And while inflation is relatively high and interest rates are still very low there is little incentive to take money out of the markets to hold as cash instead.
The caution stems from a feeling that ‘what goes up must come down’. Where professional fund and portfolio managers might address this by putting some money aside in defensive assets like gold and gilts, which generally outperform at times when stock markets are turbulent, individual investors must also decide on the right balance of assets to suit their personal attitude to investment risk.
One factor that could potentially have an impact in 2018 is the reversal of the quantitative easing implemented by US and UK governments in the wake of the 2008 financial crisis. The US has already announced it is going to decrease reinvesting in the debt securities it bought as part of quantitative easing as these are repaid. The effect is of gradually withdrawing the extra money the Federal government injected into markets to keep them moving.
Quantitative easing was a critical tool in supporting markets after the crisis, so will quantitative tightening undermine them in 2018? Not according to the experts at Invesco Perpetual, who believe it should be manageable and suggest that as quantitative easing didn’t cause a boom, quantitative tightening is not likely to cause a bust.
Ones to watch
The US market is currently expensive having undergone a long, slow recovery. However, things could pick up further following the Senate’s approval of Trump’s planned tax cuts so the market still has potential for stronger growth.
Smaller emerging economies such as India and Latin America appear to have the potential for the greatest growth, whereas the rate of growth in China is slowing. The nuances of these markets are best understood by specialists, whose expertise is available to individual investors through emerging markets funds.
Please note all investments can go down as well as up in value and this article does not constitute advice to buy or sell investments of any kind.
While it is always possible for something unforeseen to hit the stock markets, it is our view that those investing for the long term (five years plus) will be better rewarded for taking some risk with their money in 2018. If you have existing investments and/or money to invest please contact us for personalised advice on the most appropriate portfolio for your needs on 0117 966 5699 or firstname.lastname@example.org.